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Royal Caribbean Cruises Ltd. (RCL - Analyst Report) recently hiked its quarterly dividend payout by 2 cents to 12 cents per share, reflecting a 20.0% increase from the prior dividend payout. This equates to an annual payout of 48 cents per share. The increased dividend will be paid on October 9, 2012, to stockholders of record as of September 25, 2012.
Following the recovery in the leisure sector, the Miami-based Royal Caribbean resumed its quarterly dividend a year ago. However, the quarterly dividend of 10 cents was lower than its prior pay-out of 15 cents a share.
Earlier in October 2008, Royal Caribbean – the second largest cruise company, suspended the payment of its annual dividend in the wake of the economic recession and high cost of raising new capital.
The latest hike brings the forward annual dividend yield to 1.62% as of September 12, 2012. Although Royal Caribbean’s forward annualized dividend yield inched past the industry average of 1.54%, it lagged its closest peer Carnival Corp.’s (CCL - Analyst Report) current dividend yield of 2.71%.
At the end of the second quarter, Royal Caribbean’s cash balance stood at $212.2 million compared with $262.2 million at the end of fourth quarter 2011. We believe that the company has enough cash and cash equivalents to provide optimum shareholder value.
With lesser ship additions in the next few years, free cash flow is expected to rise. Royal Caribbean international will decrease in capacity by 4% in 2013. Its growth momentum will not pick up before the delivery of the first Sunshine ship in late 2014. The overall year-over-year growth for the company in 2013 will be up by just over 1% which will likely lessen capital expenditure leading to higher free cash flow generation.
We believe that an increase in dividend payment amidst a sluggish industry background affirms Royal Caribbean’s strong liquidity position and improved operating performance. We maintain a long-term Neutral recommendation on the stock.